Former Fed chair Ben Bernanke blogged about secular stagnation today and he's not buying it:
Does the U.S. economy face secular stagnation? I am skeptical, and the sources of my skepticism go beyond the fact that the U.S. economy looks to be well on the way to full employment today. First... at real interest rates persistently as low as minus 2 percent it’s hard to imagine that there would be a permanent dearth of profitable investment projects. As Larry’s uncle Paul Samuelson taught me in graduate school at MIT, if the real interest rate were expected to be negative indefinitely, almost any investment is profitable. For example, at a negative (or even zero) interest rate, it would pay to level the Rocky Mountains to save even the small amount of fuel expended by trains and cars that currently must climb steep grades. It’s therefore questionable that the economy’s equilibrium real rate can really be negative for an extended period.
His successor, Janet Yellen, is also skeptical. She acknowledged in a speech the possibility of secular stagnation, but believes it is an unlikely outcome. Her baseline scenario is for the U.S. economy to continue to recover and, as a consequence, to continue to pull up the real equilibrium interest rate:
[T] economy's underlying strength has been gradually improving, and the equilibrium real federal funds rate has been gradually rising. Although the recent appreciation of the dollar is likely to weigh on U.S. exports over time, I nonetheless anticipate further diminution of the headwinds just noted over the next couple of years, and as the equilibrium real funds rate continues to rise, it will accordingly be appropriate to raise the actual level of the real federal funds rate in tandem, all else being equal.
If we take the New York Fed's estimate of the 10-year treasury term premium and risk-neutral nominal rate as given, then the market is already pricing in a non-secular stagnation future as seen in the 10-year real risk-free treasury yield below:
The red line is a risk-adjusted measure of the expected average real short-term interest rate over the next ten years. Put differently, this measure reveals the expected path of real short-term interest rates and it is pointing up. Since it is risk free, it should only be reflecting the expected fundamentals of the real economy over the next 10 years (see here for further explanation). It started rising in early 2014 and now has been positive for about five months. That bodes well for the economy.